Digital Infrastructure Monthly Report | March

04 March 2022

5G ETF Monthly Report: Key Takeaways

  • In addition to the invasion of Ukraine, we continue to see inflation and supply chain issues putting continued pressure on the overall global economy with growth stocks particularly hitting headwinds tied to the normalization of monetary policy and interest rates. [1] Our view remains unchanged from the last update as we see these issues as a mid-term phenomenon that if anything, provide additional tailwinds for the strategy as companies continue to execute plans for 5G rollout. 
  • The index declined 3.47% in February and from an attribution perspective was driven by Digital Solutions & IP, Digital Transmission and Digital Connectivity sectors once again as these sectors contributed to approximately 80% of period returns. 
  • While Digital Solutions & IP names like Bandwidth (BAND-US) Shopify (SHOP-US) and Fastly (FSLY-US) were down as much as 30%+ in February on earnings misses and lowered guidance Sierra Wireless (SWIR-US) posted a 28.85% return on increased price targets and improved recommendations from various sell side analysts. [2]
  • Digital Transmission names Cambium Networks (CMBM-US) and Infinera (INFN-US) saw February returns of 15.01% and 9.62%, respectively on strong earnings releases. [2]
  • As we shift from a pandemic to endemic situation with corona virus the acceleration continues in the shift of the global economy’s embrace of technology, especially in education, remote work, communication, shopping, transacting, and data processing.

Please note that all performance figures are showing net data. Past performance is not an indicator for future results and should not be the sole factor of consideration when selecting a product.   

 

Macro Outlook

The main driver of this strategy is the Virtuous Circle of capacity creating opportunity and opportunity, once seized, prompting the need for more capacity. As thematic investors, we break the economy into three components: consumers, corporations, and public policy. When we see consumers and corporations pulling in the same direction, we know we have a solid investing theme. When public policy joins them, setting performance thresholds or providing development incentives such as public works projects, all three are moving in the same direction, creating powerful thematic tailwinds, which is precisely what we see for digital infrastructure development.

Signals that the Virtuous Circle is alive and well include the US Federal Communications Commission (FCC) approving regulation that prohibit the Internet Service Provider (ISP) practice of inking exclusive deals with residential apartment complexes. This has long been an issue with residents as it effectively locks them into a single service provider despite there being multiple ISP available in their area. [3] Another is the number of new technologies being developed to take advantage of existing infrastructure like smart bandages, vehicle damage trackers and more. [4]

These and other announcements keep us optimistic that current supply chain woes and silicon shortages will be resolved in the coming quarters if only due to demand for hardware spurring further development. We remain excited about this spending bill in that more bandwidth and storage only serve to spur the economy to develop uses for that new capacity, reinforcing the virtuous circle. This focus on the development of a nation’s digital infrastructure as vital to its future competitiveness is evident in many countries around the world, and as we look forward to emerging technologies such as AR/VR and the metaverse, it will only become more critical.

 

5G ETF Performance (As of 28.02.2022)

 

1M

3M

6M

YTD

12M

SI

Digital Infrastructure and Connectivity UCITS ETF (DIGI)

-3.52%

-10.89%

-11.63%

-13.62%

-4.14%

16.89%

Tematica BITA Digital Infrastructure and Connectivity Index (TBDIGI)

-3.19%

-10.48%

-11.08%

-13.29%

-3.26%

18.48%

Please note that all performance figures are showing net data. Source: Bloomberg / HANetf. Data as of 28/02/2022.

Performance before inception is based on back tested data. Back testing is the process of evaluating an investment strategy by applying it to historical data to simulate what the performance of such strategy would have been. Back tested data does not represent actual performance and should not be interpreted as an indication of actual or future performance. Past performance for the index is in USD. Past performance is not an indicator for future results and should not be the sole factor of consideration when selecting a product. Investors should read the prospectus of the Issuer (“Prospectus”) before investing and should refer to the section of the Prospectus entitled ‘Risk Factors’ for further details of risks associated with an investment in this product. Please note that all performance figures are showing net data.

 

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